Amidst the steady fluctuation of the naira against the dollar, Nigeria’s external reserves have seen a significant 11.55% year-to-date decline, equating to a staggering $4.28 billion. The Central Bank of Nigeria’s data reveals a drop from $37.06 billion on January 3, 2023, to $33.78 billion as of December 20, 2023.
The diminishing foreign currency reserves can be attributed to a multitude of factors, primarily stemming from the low revenue generated from crude oil sales and the escalating demand for foreign exchange (FX). Nigeria, known as Africa’s largest economy, heavily depends on oil exports. However, the plunge in oil revenue, influenced by geopolitical events and market conditions, has been detrimental to the country’s financial inflow, ultimately impacting the external reserves.
Consequently, there has been a gradual depreciation of the naira against other currencies, fueled by the pent-up demand amidst the shortage of dollar supply. In 2023, the naira’s exchange rate against the dollar depreciated by an alarming 125.55% at the Nigeria Autonomous Foreign Exchange Market (NAFEM), the official FX window. This decline is evidenced by the dollar being quoted at N885.88 on December 23, 2023, compared to N460.93 quoted in the first quarter of the year.
Furthermore, the parallel market, commonly referred to as the black market, witnessed a 62.16% devaluation of the naira, with the dollar being sold for N1,223 on December 25, 2023, as opposed to N740 at the onset of the year.
Olayemi Cardoso, the Governor of the Central Bank of Nigeria, emphasized the potential for rebuilding foreign exchange reserves to levels comparable with similar economies, stating at the Chartered Institute of Bankers of Nigeria (CIBN)’s bankers’ dinner, “We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies.”
As per the most recent data from the Central Bank of Nigeria, Nigeria’s gross official reserves regressed by $392 million month-on-month (m/m) to $33.0 billion in November 2023.
The decline in Nigeria’s external reserves and the devaluation of the naira underscore the pressing need for strategic interventions to stabilize the economy and fortify the nation’s financial foundations against external vulnerabilities.
